Rystad Energy: Shale Newsletter - February 2021 - eng

US land tight oil activity metrics and associated gas flaring have been moving in opposite directions lately, in stark contrast to the trends observed in 2018 and 2019. While frac activity rebounded sharply in the second half of 2020 and thereby stabilized US onshore oil output in major liquid basins, wellhead gas flaring volumes have been trending downwards since early 3Q20 in the Permian, Bakken, Eagle Ford and DJ/PRB basins combined. This encouraging new trend truly illustrates the structural change in communication between E&P and midstream companies and the industry commitment towards more responsible tight oil development with greater emphasis on integrated project planning. Based on preliminary reported data, Rystad Energy estimates that wellhead gas flaring in the four major US onshore oil regions declined from about 570 million cubic feet per day (MMcfd) in October 2020 to 470 MMcfd in November 2020, representing the lowest monthly level observed since 2017. The decline was driven primarily by the Permian and Eagle Ford basins, while flaring in the Bakken remained at around 200 MMcfd.

As associated gas production hit new records in several regions in 2H20, the improvement in flaring intensity (percentage of gas flared) was even more dramatic. Even in the Bakken, flaring intensity declined to about 6.5% and has been stable since September. Wellhead flaring intensity in the Permian was down to 1.2% in November, a level not seen since 2012. Moreover, the flaring intensity in the Permian has nearly caught up with that of Eagle Ford, which has normally exhibited much lower intensity amid its high contribution from gas-condensate reservoirs.

Preliminary 4Q20 data suggests that total Permian flaring – including satellite-based estimates for flaring on midstream facilities – declined by 17% between 3Q and 4Q20 and averaged about 350 MMcfd in the final quarter of 2020. Delaware North (New Mexico) is the only major sub-basin that saw a sequential increase in flaring in 4Q20, but it is also the region with the most significant jump in both activity levels and in oil production.

At the same time, Delaware North exhibits the lowest flaring intensity among major Permian sub-basins along with Midland North – 1.2% as of 4Q20. Meanwhile, basinwide wellhead flaring intensity has continued to decline, reaching 1.4% on a quarterly basis in 4Q20, versus 1.7% in 3Q20. It is possible that final 4Q20 flaring intensity numbers will end up close to 1.3% once the reporting becomes complete for December 2020. Delaware East is the only major sub-basin where flaring intensity remains above 2%, whereas Delaware West largely followed the basinwide flaring intensity trend in 2H20. Midland East posted a wellhead flaring intensity of 1.4% in 4Q20, in line with the estimate published in our previous review of flaring activity.

A clear majority of significant Permian producers remain committed to their flaring intensity goals and there has been no sign of any sudden spikes in flaring intensity based on the latest data. Among the 45 largest gas producers in the Permian during 2H20, 27 exhibit a flaring intensity of 2% or less while 11 are in the range of 2.1% to 4.0%. The remaining seven operators with higher flaring intensity represent a mix of private producers and companies that conducted significant completion rounds that were put on production recently.